For the monetary policy panel at Netroots Nation, I opened with the story about how the giant battle over the Bush tax cut extensions, payroll taxes and unemployment insurance from last December received (well-deserved) extensive coverage, but the FOMC battles over whether or not to call Mission Accomplished for the recovery and start raising rates in 2011 hasn’t. Whatever stimulus created by that December compromise would be immediately cancelled out if the Fed started raising rates or signaled it was exiting QE2 early, and these fiscal policy deals would have been for nothing.

To prep, I watched Obama’s December 7th press conference where he takes questions on the compromise again. I forgot about the fact that the debt ceiling question came up there.

If you click at this link, or simply move the youtube video to 22m and 50s mark above, you can see Marc Ambinder ask the President why he didn’t try to include the debt ceiling increase in the Bush tax cut extensions. First the President asks him to repeat the question to clarify (as if he didn’t understand?), and, shocker, basically says he’s not worried because the Republicans will behave responsibly.

“I’ll take John Boehner at his word…You can’t just stand on the sidelines and be a bomb thrower.” Classic.

Q Mr. President, thank you. How do these negotiations affect negotiations or talks with Republicans about raising the debt limit? Because it would seem that they have a significant amount of leverage over the White House now, going in. Was there ever any attempt by the White House to include raising the debt limit as a part of this package?

THE PRESIDENT: When you say it would seem they’ll have a significant amount of leverage over the White House, what do you mean?

Q Just in the sense that they’ll say essentially we’re not going to raise the — we’re not going to agree to it unless the White House is able to or willing to agree to significant spending cuts across the board that probably go deeper and further than what you’re willing to do. I mean, what leverage would you have —

THE PRESIDENT: Look, here’s my expectation — and I’ll take John Boehner at his word — that nobody, Democrat or Republican, is willing to see the full faith and credit of the United States government collapse, that that would not be a good thing to happen. And so I think that there will be significant discussions about the debt limit vote. That’s something that nobody ever likes to vote on. But once John Boehner is sworn in as Speaker, then he’s going to have responsibilities to govern. You can’t just stand on the sidelines and be a bomb thrower.

And so my expectation is, is that we will have tough negotiations around the budget, but that ultimately we can arrive at a position that is keeping the government open, keeping Social Security checks going out, keeping veterans services being provided, but at the same time is prudent when it comes to taxpayer dollars.

Keep watching for President Obama to get upset at the left on the public option after a question about what are his core values are is asked.

Meanwhile, Ezra Klein is hearing that the “debt-ceiling deal looks like it’ll be almost entirely composed of cuts and caps.” Yup.

Remember, in a fit of irrational exuberance, the Fed did actually raise the discount rate… And when they did, the dollar strengthened, for those of you who say the discount rate doesn’t matter. What an emblematic mistake that turned out to have been…

“Whatever stimulus created by that December compromise would be immediately cancelled out if the Fed started raising rates or signaled it was exiting QE2 early, and these fiscal policy deals would have been for nothing.”

I am not aware of any evidence that the December tax deal and a Fed tightening of some unspecified magnitude would be offsetting. since we cannot know the magnitude of an unspecified tightening, it’s sort of ridiculous to make claims about what it could offset. Even if we posit a particular Fed move, we – and that includes you, dear host – have no ability to make accurate comparisons of economic impact. The range of estimates of the impact of fiscal and monetary policy are generally pretty large. You simply cannot know that some unspecified Fed tightening would fully offset the December tax cut. You shouldn’t make claims predicated on the ability to know something you cannot know.

Why can’t liberals have nice things? Because we’re locked in a race to the bottom. Jon Huntsman understands this — and we little people can trust him because he sincerely enjoys cheap Mexican take-out.